Do you really think a hedge fund - or any private lender woulds give a credit to the irish banks at 1.75%?

The current negotiated rate for the bailout loan is 5.8%, which looks pretty damn punitive to me - and certainly if you want a country to get out of a depression, loan sharking isn't the most effective way to do it.

Loan sharks? Do you assume the other european countries can borrow at 0%? And the ECB has given the banks - and that means nowadays the irish banks - a lot of money at 1.75%. And you think 1.75% is to high and so the irish banks have a right to default on their debts to the ECB.

That is of course nutty. Austerity now is a mad proposal. But I think a lot of the irish deficit is cyclical and would go away on a upturn. The remaining deficit can be closed. The irish are rather undertaxed - especially income tax and yes corporate tax.

So why should be impossible to balance the budget in five years or so?

If the ECB and IMF were not demanding Austerity Now!, then we wouldn't be having this discussion, because Ireland would be perfectly able to repay the debt in due time. But Austerity Now! is what is being demanded, and what will cause Ireland to default. Well, better to default now, and let the people who are demanding Austerity Now! eat the losses, than first crash the Irish economy and then default, leaving the Irish public in a smoking crater and the people who are demanding Austerity Now! still eating very nearly the same losses.

Japan "managed" by adopting a zero interest rate policy. This had the effect of making it cheap to hide the insolvency of its major banks for a decade -- at the cost of a "lost decade", (or two), of economic stagnation from which the Japanese economy has yet to truly emerge. It also helped GE and others who profited immensely from the "Yen carry trade". Richard Koo has written extensively about this "lost decade" and made an excellent presentation at George Soros' forum this last spring.

A common consequence of prolonged cheap money regimes is the creation of asset bubbles. In the US Greenspan's prolonged cheap money policy combined with "see no evil" regulatory forbearance helped fuel the bubble that broke in 2008. That bubble which began in 1999 served to facilitate the extraction of wealth from the US middle class by the US banking elites through home equity loans that made possible the continued purchase of cheap Chinese goods that also profited those same elites -- at the expense of the US worker whose real income has declined.

The end result of such cycles is economic devastation for the many and, absent governmental intervention as with FDR, consolidation of the wealth and power of the financial elites. As a collective institution that financial elite is incapable of concern for the health of the body politic or the average citizen and, in a failed attempt to continue to extract expected returns, imposes massive gratuitous damage on the society as a whole. This is what is looming for Ireland.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."